Government Bonds listed on the Stock Exchange

Accra, Oct. 17, GNA 96 Two of the government issued bonds worth 2,456.5 billion cedis were listed on the Ghana Stock Exchange (GSE) on Tuesday with brokers and industry players expressing the hope that they would perform better than the three-year Government of Ghana Index-Linked Bonds (GGILBs) which matured in 2004.

There was no trading in the GGILBs when it was listed on the stock market.

Mr Francis Kwabena Andoh, Acting Head of the Bank of Ghana (BoG) Treasury Department, explained that the GGILBs did not succeed because it had a floating rate which was linked to inflation.

He said the bonds, which were designed as floating rates, eroded the Government's guarantee on the investment as a result of which brokers and banks did not know how to price them in order not to be affected by inflation.

Mr Andoh said another problem with the GGILBs was that the banks, which purchased the bonds, used them as a requirement for their secondary reserve and therefore held on to them.

The secondary reserve is currently abolished and the market operators therefore expect some of the banks to let go their investments as and when they deem fit in order to influence trading in the newly listed two and three-year bonds.

The two-year bond has 35 issues worth 2,040 billion cedis while the three-year bond has 27 issues worth 416.29 billion cedis.

Mr Andoh said the listing of the two new bonds, which have fixed rates, would also be more attractive because they were alternative investment avenues for medium-term investments.

He explained that investors did not have to reinvest over and over again like the 91-day and 182-day treasury bills, while they were also assured of their interest rates.

Mr Andoh said the listing of the new bonds and their subsequent trading on the market were expected to provide a platform for secondary trading in Government securities and give an opportunity for market participants to develop the necessary skills in trading of bonds.

Trading in the bonds is also expected to help to develop a yield curve for the medium term financial market to serve as a benchmark for the private sector to borrow funds through the issuance of corporate bonds.

BoG has designated institutions as government security dealers to engage in secondary trading of the bonds but licensed dealing members of the GSE can also trade in the bonds.

Mr Andoh said training programmes had been held for the dealers and expressed the hope that their continuous trading on the floor of the market would give them the required experience to also educate the investing public.

Dr Anthony Akoto Osei, a Deputy Minister of the Ministry

of Finance and Economic Planning, said the Government's

objectives for listing the bonds on the GSE included the fact

that it was necessary to diversify the sources of funding for

Ghanaian firms to complement the efforts of the banks. He said the Government also required significant

resources for development needs and that the capital

market served as one of the best sources to provide the

funds.

The Deputy Minister said the Government had budgeted

38.7 million dollars for the development of the financial

sector out of which 9.1 million dollars had been earmarked

for the development of the capital market including the

automation of the stock exchange expected to begin next

year. He said as part of Government's commitment to develop

the capital market, two state-owned enterprises would be

divested through the stock market. Money has also been allocated for the relocation of the

Securities and Exchange Commission, Dr Osei said, and

expressed the hope that the efforts being made would help

to boost the country's image as an international financial

market. Mr Van Lare Dosoo, a Deputy Governor of the BoG,

observed that Ghana had become a mature stabilizer from

all indications and that the focus of policy was now

developing into an emerging market economy capable of

accelerating growth. =93What needs to be done is to position the financial

system to facilitate effective intermediation in an

environment of price and financial stability,=94 he said. =93The development of the domestic capital market is a

priority along with the payments infrastructure and

settlement systems that would make the financial system

robust and resilient.=94 Mr Dosoo said a policy that would have as one of its

main pillars the development of a fully integrated payments

and settlements system had been initiated. This is required as an essential component of the

economic and financial infrastructure and would allow

secure and prompt settlement of transactions.

As a consequence, all the various components of the payments system such as the Real Time Gross Settlement System; Central Securities Depository System, Code-line Clearing and Cheque Truncation System, and an Automated Clearing House would be put on one platform as well as a SMARTCARD with a biometric recognition technology which would be available nationwide.

Mr K S. Yamoah, Managing Director of the GSE, said

the listing of the bonds presented an opportunity to get all

the structure and capacity building in place to assist in other

new areas. The new areas, he said, included the need to encourage

municipalities, utility companies, the transport sector,

including railways, to ultimately use the capital market to

raise debt securities to revamp their revenue generating

assets. Dr Sam Mensah of the Securities and Exchange

Commission observed that Ghana's bond market was

lagging behind in development.

He mentioned Zambia and Botswana as some of the countries whose bond markets had developed and gained recognition on the Continent.

Dr Mensah noted that the Foreign Exchange Bill with its non-resident Ghanaian investment status as well as the International Financial Services programme posed challenges to the dealers in the financial market and urged them to strive to overcome the challenges.